Question

how to calculate sales budget/cash collection budget for a master budget case?

Answer 1

Sales budget is calculated by multiplying the number of units expected to be sold with the sales price. For eg: A company expects to sell 1000, 2500, 5000 units in month of January, February and March. The selling price of a unit is $20. Sales budget is as follows:

	Jan	Feb	Mar	Total
Expected units sold	1000	2500	5000	8500
x Selling price	20	20	20
Total sales	20000	50000	100000	170000

Cash collection budget is made once the sales budget is made. On the basis of sales budget, we can determine when is the cash from the sales budget actually collected. For eg: In above example, it is assumed that all sales are credit sales. 20% of the amount is realized in the same month and 80% in the following month. In this case, the cash for sales made in Jan (20000) will be realized in Jan (20%) and Feb (80%). Similarly for sales made in Feb (50000) cash will be realized in Feb (20%) and Mar (80%). For sales made in March, 20% of cash will be collected in March and 80% in April

Cash collection budget is as below:

	Jan	Feb	Mar	Total
Total sales	20000	50000	100000
Cash collection for Jan sales	4000	16000
Cash collection for Feb sales		10000	40000
Cash collection for Mar sales			20000
Total cash collection	4000	26000	60000	90000